Geographic Focus: The German Experience with SRI.

transcript

Socially Responsible Bond Investment

TBLI Conference, Frankfurt, Nov. 2–4, 2005

Eckhard PlinkeBank Sarasin & Co Ltd.

September 2005Sustainable Investment 2

Socially Responsible Bond Investment

TBLI Conference, Frankfurt, Nov. 2–4, 2005

Eckhard PlinkeBank Sarasin & Co Ltd.

Agenda

1. Bank Sarasin & Co. Ltd

2. Investment Style in Germany – Fixed Income is important

3. Socially Responsible Bond Research at Sarasin

4. Summary

1. Bank Sarasin & Co Ltd.

• Swiss Private Bank, founded in 1841

• Specialised in asset management, private banking and trading

• Approx. € 35bn assets-under-management

• More than 1,140 employees

• Headquarters in Basel; offices in Zurich, Geneva, Lugano, Dubai, Guernsey, Hong Kong, London, Luxemburg, Munich, Paris and Singapore.

AssetManagement,

Products & Sales

Trading &Logistics

Private & Institutional

Clients

Bank Sarasin & Co. Ltd

Bank Sarasin & Co. Ltd:Your „Center of Competence“ for Sustainability

• More than EUR 1.6bn sustainable assets-under-management.

• One of the largest managers in continental Europe

• Independent

• More than 15 years of expertise in sustainability research and asset management with a stable team

• 17 international and interdisciplinary professionals with an average of 13 years of job experience

• Broad product range

• Proprietary database and rating system with information about around 900 companies and 170 additional bond issuers

2. Investment Style in Germany – Fixed Income is important

Asset Allocation in Germany: Bonds most important

Others6%

Bonds62%

Equities32%

Institutional Investors („Spezialfonds“) 2004

(analysed 427 bn EUR out of about 530 bn EUR)

Source: Handelsblatt, 9.12.2004

Retail Funds 2005*(418 bn EUR)

Equity Funds37%

Others18%

Bond Funds39%

Balanced Funds

6%Source: BVI 2005

*) excluding Real Estate Funds

SRI Funds: Focus on Equities (traditionally)

Equity Funds71%

Bond Funds13%

Balanced Funds16%

Source: Bloomberg

Retail SRI Funds Germany 2005

(98 funds)

Equity Funds45%

Others8%

Bond Funds35%

Balanced Funds12%

Source: BVI 2005

Retail Funds Germany 2005

(2392 funds)

3. Socially Responsible Bond Research at Sarasin

Bonds – Variety of Issuers

Bonds Sarasin SRI Research

Corporate Bonds Company Ratings

Government Bonds Country Ratings

Institution Bonds Institution Ratings

Asset Backed Bonds „Pfandbrief“ Ratings

Traditional Focus of SRI

Sarasin Sustainability Matrix®: Common Frame

Company Rating: Example Unilever

Sustainability Assessment: Companies

Country Rating: Philosophy

Sustainability Efficiency

Sustainability Level

e.g.:• per capita CO2 emissions• unemployment rate

Low impactHigh impact

e.g.:• $ GDP per MJ energy

consumed• Public health per $ of

health care expenses

Industrialisation

Dematerialisatio

Developing Countries

Industrialised Countries

“Sustainable”Countries

Road to Sustainability = Efficiency Increases:

• Environment: Decoupling material welfare – environmental impact

• Society: Decoupling quality of life - material welfare

Country Rating: Coverage and Grouping

Group Rated Eligible for SRI

Core OECD Countries (high credit ratings)

Emerging Countries 46 15

Grouping according to credit rating:

Air / Climate

Energy

Institutional Frame

Health

Education

Cohesion

Income

Public Debt

Foreign Affairs

0.0 1.0 2.0 3.0 4.0 5.0

Biodiversity

Air / Climate

Energy

Personal Stress

Marginalisation

Human Rights

Country Rating: Example Sweden

Sustainability LevelS

low high

Sarasin Sustainability-Matrix®

Sweden Average of analysed countries

Sustainability Assessment: Countries

Country Rating: Example PR of China

PR of China Average of analysed countries

Sarasin Sustainability-Matrix®

Sustainability LevelS

low high

Air / Climate

Energy

Institutional Frame

Health

Education

Cohesion

Income

Public Debt

Foreign Affairs

Biodiversity

Air / Climate

Energy

Personal Stress

Marginalisation

Human Rights

Public Financial Institution Rating: Principle

Sustainability Level(Environmental and social compatibility of the institution’s mandate)

highlow

Sustainability Efficiency(Sustainability of the institution in performing its mandate) Sarasin

Sustainability-Matrix®

Institution Rating: Example KfW Bankengruppe

Sustainability Level

„Pfandbrief“ Ratings: Principles

Type of „Pfandbrief“ Collateral Rating Approach

Public (Öffentlicher Pfandbrief)

Government Bonds Average country rating of the government bonds in collateral stock

Mortgage (Hypotheken-Pfandbrief)

Mortgage/Real Estate

Rating of the banking group behind

Basic Principle: Rating of the collateral (“where the money goes”)

Rating of Public Covered Bonds: Example

Germany60%

Austria4%

Japan1%

Spain8%

Italy10%

Belgium14%

• Rating: Average rating (“center of gravity”) within the area of the Sarasin Sustainability-Matrix® eligible for investment

• Exclusion Criteria: USA (3%) und Japan (1%) are excluded (limit: 10%)

this public covered bond would be eligible for investment

Collateral

Sustainability Assessment of Mortgage Covered Bonds

• Rating of the banking group which the issuer of the bond belongs to (e.g. Eurohypo > average of Deutsche Bank, Commerzbank, Allianz )

• Kind of real estate is taken into account: financing of residential real estate is principally regarded as being unproblematic; financing of real estate for critical businesses (e.g. defence) is taken negatively into account

• Special conditions for an environmentally friendly construction etc. are taken positively into account

4. Summary

Summary

• Fixed Income is the most important asset class for German institutional investors, while SRI has focussed on equity investment

• Variety of bonds requires variety of SRI assessment approaches (rating methods) > quite sophisticated and extensive SRI research

• What is SRI in bonds good for?:- Contribution to Sustainable Development (can have a more direct

impact than equity investment, e.g. development agencies)

- Reduction of financially relevant risks (e.g. link between social imbalances, indebtedness of countries and default risks of government bonds)

Geographic Focus: The German Experience with SRI.

Economy & Finance